Champerty used to be a crime. Now it is known as third-party litigation funding and has developed into an investment industry backed by up to £500m of investor cash looking for lucrative courtroom opportunities.

Both the obscure Anglo-Norman legal term and the modern business jargon describe the process of helping claimants pursue court cases in return for, it is hoped, a substantial slice of the eventual damages.

This month the UK market leader, Harbour Litigation Funding, announced a tripling of available finances to £180m. The growth of London as a global legal centre – drawing in Russian and Middle Eastern disputes attracted by Britain's reputation for impartial justice – has multiplied the possibilities for investment.

The justice secretary, Ken Clarke, has been in Russia this month promoting the availability of the UK's legal services for international clients.

At the same time, surging legal expenses have encouraged claimants to find alternative means of controlling prohibitive court costs. By using third-party funders they can reduce their liabilities in exchange for taking a reduction in any award.

Harbour Litigation Funding invests in commercial claims with a value of more than £3m. Susan Dunn, the firm's head of litigation funding, has been in the business for a decade. In that time the trend had "only been upward", she said.

She added: "Law firms are looking to find other ways to fund their bills. Small and medium sized businesses can't afford to bring cases. We increased our fund from £60m to £180m. We have the ability to spend where we like. Our focus is UK litigation and arbitration, but we also work in other common law jurisdictions such as the Channel Islands, the US, St Nevis and New Zealand.

"There's been a recognition that England and Wales is the best place to litigate. Courts move efficiently here, appeals are only allowed on substantive points.

"We get about 25 cases a month, people asking us to fund their claim. For each one we consider [several factors]. Can the defendant pay? Where is the money? Is it a case we are likely to win? And how much?

"We need to know we are going to win a meaningful amount. And we need to know the costs. We have a judge [the former high court judge Sir Gavin Lightman] among our advisers. We don't control the litigation. If we lose the case we have to write off the investment."

Dunn's most expensive loss, when at a previous firm, was £2.5m. "Our biggest win was one we did not reveal was funded." Fees are not standardised; a smaller percentage is charged for larger claims.

"We are the UK's largest third-party litigation funder. We have a big pot of cash and are looking to invest. There are quite a lot of people setting up their stalls now. I reckon there's probably £500m in the UK ready to pay for third-party litigation."

Many of her cases were "David versus Goliath" contests, she explained "[like] small companies that can't afford to put up a couple of million to pursue a claim. Finance directors don't want to put an unknown figure in their accounts. Without someone like us the defendant gets away with it."

Of the £60m Harbour has spent on 36 cases, 32 were continuing and four were "in profit".

It can be a lengthy business waiting for returns: one case settled in 2003 was still in "enforcement", with money coming in slowly from an overseas defendant.

Harbour's investors are mainly City institutions but there are "lawyers we know who want to put in a few pounds".

Other litigation funders are also expanding. Vannin Capital, based in the Isle of Man and the British Virgin Islands, has this month increased its investment capital to £100m. Its website offers to transform any company's "legal department from a cost centre to a profit centre".

Juridica Investments Ltd, based in London, Guernsey and New York, describes itself as a "lawyer-owned financial services company operated in an investment banking tradition". It lists the typical claim size it backs as between $25m and $100m.

The word champerty derives from the old French term champart, meaning sharing part of a tenant's field or crop. It was banned because it supposedly encouraged excessive litigation and was only formally decriminalised in 1967.

Suspicion lingers. In March, Lord Thomas of Gresford, a Liberal Democrat, called for a statutory code to govern how third-party litigation funding operated, deploring the "insidious advance" into the UK of "essentially an American concept".

Ministers, however, support a voluntary code of conduct that was drawn up last November by the Association of Litigation Funders.

The boom in commercial litigation funding comes at a time when legal aid for cases involving welfare, debt, housing, clinical negligence and others areas has been slashed by the government. The terms of "no win, no fee" agreements have also been altered to make them less attractive to claimants.

Christopher Hancock QC, a commercial barrister who speaks on behalf of the Bar Council on this issue, offers a cautious welcome to the practice.

"It represents a commercialisation of the legal process," he said. "But damages-based agreements, as an alternative means of access to justice, will enable people to go to court who would not otherwise be able to. It will probably grow and fill a niche. But it's not going to be an instant cure for the problems of litigation funding [for those pursuing small claims]."

He added: "We have some ethical concerns because there's a potential conflict of interest with solicitors or barristers having a financial interest in trials. That needs to be policed. Third-party funding is here to stay. It's right that the code for litigation funders should be voluntary rather than statutory."

Steve Hynes, of the Legal Action Group, which campaigned against the government's legal aid cuts, said that third-party litigation funding would help "lawyers take on more lucrative cases, but people with marginal cases will lose out".